Are institutions adapting to the changing wealth management landscape?

The wealth management businesses of many large institutions have struggled to adjust to the post FOFA advice environment and a rapidly evolving investment landscape.

The next big shift in this changing landscape will affect accountants, when on July 1 they will require a financial services license to advise on SMSFs. Caution should be exercised by accountants exploring licensing options amongst the larger providers.

Meanwhile Media-driven scrutiny has significantly undermined the value proposition of institutions as providers of both financial advice and financial products. The latest casualty is again the CBA, though this time due to alleged misconduct within insurance products and the handling of insurance claims.

Negative media scrutiny also continues to impact the value of institutions as providers of both financial advice and financial products. The continued advice and product failures by financial institutions has increased both consumer awareness and cynicism, especially when there is a vested interest by the institution in the financial advice provided.

This drive to improve consumer transparency and experience has driven wealth management businesses to explore alternative ways of differentiating themselves. Technology-focused investment platforms have emerged as a key battleground in the fight for market share.

In the competitive investment platform market, agile independent investment service providers are driving down costs and providing improved service propositions without the legacy constraints of large institutions. The ASX is also emerging as a competitor to wealth management businesses via the growth of its mFund’s settlement services and the growing availability of exchange traded products (ETPs) and listed investment companies (LICs).

Elsewhere, financial consolidation tools developed for retail consumers are also picking up wealth management market share. Pocketbook and MoneyBrilliant are two such providers that engage directly with consumers by consolidating financial data. Acorns is another provider that utilises behavioural psychology to target consumers by attaching savings and investing with the change from expenditure.

These providers, in conjunction with the ASX developments, provide consumers more control of their finances and make financial management more accessible without the need for a traditional institutional intermediary. The value of Institutional incumbency is being eroded on all sides.

The direct to consumer focussed providers are generating large databases from ‘free’ or low embedded cost services. They are emerging as a big opportunity for lead generation sources to traditional wealth management businesses, a confirmation of which was seen when AMP recently fully acquired MoneyBrilliant.

MoneyBrilliant provides AMP a database of prospective clients and a financial consolidation tool that extends well beyond the typical “ring-fenced” AMP product offering. This is an important quality for the next generation of more informed and cynical wealth accumulator’s. Should rumoured integration between MoneyBrilliant’s data consolidation service and advanced cash flow modelling provider Prospera occur, AMP will have a powerful tool to improve their client value proposition.

CommSec, Australia’s leading retail broker, has not developed the technology capability to access ASX’s mFund settlement service. This opens the door for more agile brokerage firms and larger players alike to gain ground on CommSec’s share of the retail share trading market.

Westpac recently reduced their exposure to wealth management and advice provider BT (WBC would argue for capital requirement reasons primarily) and rumours also circulate over NAB’s potential sale of MLC life or even the sell-off of MLC in its entirety.

Although the future viability of an integrated financial advice and financial product business remains unclear, the enhanced competition in all these areas means it has never been a better time to be an investor.